The competition watchdog has refused to give authorisation to proposed home insurance standard definitions for “wear and tear” and “taking reasonable steps” on maintenance, plus related education campaigns in a preliminary decision. 

The Australian Competition and Consumer Commission says the definitions have “a number of deficiencies” and it is “not satisfied that there is likely to be a public benefit, based on the information currently before it”. 

“While the magnitude of the public detriment is unclear, the ACCC considers there is likely to be at least some public detriment arising from the proposed conduct through a reduction in competition, due to a standardisation of these policy terms,” the commission said in its draft determination yesterday. 

“The ACCC is also concerned that the proposed conduct may impact other aspects of insurers’ offerings (such as claims handling and decisions, and pricing) that could otherwise be a basis for differentiation and competition between insurers.”

An ICA spokesperson says the proposed definitions are “part of the industry’s commitment to improve consumer outcomes by providing greater transparency and certainty, and to respond to a recommendation of the parliamentary flood inquiry” into the 2022 catastrophe. 

“We note the ACCC’s draft determination … This process is ongoing, and the Insurance Council looks forward to continuing our constructive engagement with the ACCC and consumer advocates throughout this process on behalf of our members,” the spokesperson told insuranceNEWS.com.au. 

ICA had in March lodged the proposed definitions and planned education campaigns with the commission for authorisation for five years. 

The industry peak body said the proposals are aimed at addressing concerns regarding consumer confusion and increasing instances of denied claims as a result of maintenance and wear and tear exclusions, which differ across insurance providers. 

Claims disputes over such exclusions were among key issues that emerged from the federal inquiry into the 2022 floods. 

According to the ICA, the proportion of denied claims that are attributable to maintenance and wear and tear exclusions increased from 9.2% of all denials in 2020 to 51% of all denials in 2023, while the average number of new claims each month remained relatively steady. 

Consumer groups remain opposed to the industry-led proposed definitions. 

Australian Consumers Insurance Lobby Group says it backs standardising insurance definitions but believes the work should be directed by Treasury or the corporate regulator. 

Financial Rights Legal Centre today pressed the federal government to step in to standardise key insurance terms like “maintenance” and “wear and tear” as soon as possible. 

The ACCC is seeking submissions on its draft determination by August 20 before making a final decision in September.

See the draft decision here.